The purpose of Part Two is to help you conceptualize your system and then build the groundwork necessary to construct it. Part Two consists of four chapters. Chapter 4 presents the critical steps that are necessary for developing a system that fits you. It represents years of work studying the world’s best traders and investors to determine exactly how they do their research.
Chapter 5 presents a synopsis of some of the various concepts that you might use in your trading system. I’ve asked some extremely knowledgeable people to contribute to this chapter; plus I’ve added my own sections. Read through the different concepts and determine which concept appeals to you the most. You might even adopt several of them.
Chapter 6 presents my understanding of the big picture. I believe that whatever system you develop must take the big picture into account and be adaptable as the big picture changes. For example, you might have had a trend-following system that only bought high-technology stocks in 1998, and you thought you were going to become very rich and successful. However, if that was your system, then everything turned upside down in 2000.
Chapter 7 presents the concept of expectancy. Expectancy refers to how much you will make with your trading system per dollar risked. Few traders or investors really understand expectancy, and yet it is one of the most important topics in this entire book.